Global Economics

Designer Hotels Hit the Hot Spots

Armani in Dubai, Missoni in Kuwait, Bulgari in Milan—fashion houses are teaming up with Ritz, Marriott, and their ilk to provide luxury rooms with a label

Coco Chanel, the late grande dame of French couture, said she didn't do fashion—she was fashion. An apt metaphor, perhaps, for the latest trend among the titans of fashion and luxury. No longer content merely to design haute couture and accessories, they are branching out into the "experience" business by lending their design style and brands to top-of-the-line hotels and resorts around the world. Love your outfit from Bulgari, Armani, Missoni, Versace, or Moschino? Now you can wear it in surroundings conjured up by the same designers.

These accommodations don't come cheap. Most run $500 or more a night, and they deliver as much in attitude as in amenities. But they're aimed at an emerging niche: people who crave something more individualized than conventional Ritz or Four Seasons (FS) hotels. The emergence of such "lifestyle" destinations is a result of increasing segmentation in the hospitality business, says Robert Barnard, a partner at global consultancy firm PKF who specializes in the hospitality industry. "Customers are interested in collecting experiences," he says.

They'll get plenty at some of the new designer hotels. The G hotel in Galway, Ireland, designed by native son and stylist Philip Treacy, features a salon decorated in shocking pink. The Byblos Art Hotel in Italy's Valpolicella region features contemporary paintings and year-round art events. And the new Armani hotel set to open in Dubai in 2008 will be tucked inside the world's tallest building.

Rich and Picky

Fashion houses are convinced that branded hostelry fits their business models. After all, they're already trading in luxury, image, and aspiration. But while the designers are heavily involved in the conception and decoration of these new establishments, most don't own or operate the properties. Instead, they're teaming up with hoteliers such as Ritz-Carlton and Marriott International (MAR) or with equity partners.

Marketers say that one of the biggest challenges now facing purveyors of high-end goods and services is the emergence of consumers who "pick and mix" where they spend their luxury dollars. "We can no longer talk in simple terms of business travelers or high-net-worth individuals on vacation," says Tamar Kasriel, a futurist and head of Knowledge Venturing at the Henley Centre, a marketing think tank in London.

To attract such choosy customers, hoteliers are laying on luxury and "experiences," such as Michelin-star restaurants, in-house recording studios, personal shoppers, spas, helicopter rentals, and perhaps a spin in a Ferrari. "Suspension of disbelief fits into the increasingly elaborate tastes of travelers," says Kasriel. Fashion houses, she adds, "are all well-placed to create a longing within certain segments of the customer market."

Destination: Dubai

Location also matters. Die-hard fashionistas from around the world have cash and will travel. But fashion houses are placing most of their bets on venues where there is already lots of money—and big interest in luxury brands. These days, that often means the Persian Gulf area, especially booming Dubai. With the second-highest hotel occupancy rates in the world, after London, and gross operating profits per room of more than 33%, it's a destination that's impossible to ignore.

Dubai also increasingly epitomizes luxury. EMAAR, the team behind the elite Dubai Burj super-tower (destined to be the tallest in the world on completion in 2008), is incorporating an Armani hotel and luxury apartments into the building. Australian property developer Sunland Group and Versace also will launch a resort in the Dubai in 2008, following their successful Palazzo Versace on Australia's Gold Coast. Italian designer Missoni is betting on nearby Kuwait, with a planned opening at the Symphony Complex in Kuwait City in 2008.

Fashion houses also are betting heavily on Italy. A number of brands have opened or are planning flagship hotels in Milan, including Bulgari, Moschino, and Armani. Located close to company headquarters and shopping destinations, these hotels will likely become even more popular after the opening of Milan's planned Città della Moda (Fashion City) in 2010.

Keeping the Edge

Once established in retail-obsessed cities, the next step will be to diversify geographically to build global brand awareness—especially in fast-developing Asian markets. In a market that is increasingly pro-niche and anti-chain, says futurist Kasriel, the key is to develop a small and exclusive series of hotels around the world.

Bulgari is an early example. With a plan to create "unique hotels in unique locations," it started in 2004 with a property in Milan, located in the fashionable district of Brera. More recently, Bulgari opened an exclusive villa hotel and spa overlooking the Indian Ocean on the shores of Bali. The resort combines contemporary Italian design with traditional Balinese style.

Of course, in a world of Habitats and Pottery Barns, where consumers can easily create a designer feel in their homes without breaking the bank, demanding clients will be looking for something even more special. A risk for fashion-based hotels is their need to constantly renew—and reinvest—to keep their look cutting-edge.

Add It to My Bill

Fashion houses are familiar with the business model. After all, for many of them, haute couture is the loss-leader, with most of the real money being made from prêt-à-porter, perfume, and accessories. Hotels will follow a similar model: The profits come from the "lower" areas—bars, restaurants, sports lounges, and spas. Add to that merchandising of products for sale in the lobby or guest rooms, and fashion houses can afford to splurge on spectacular lobbies and up-to-date furnishings.

That's what Versace is doing: The Palazzo Versace in Australia is entirely fitted out with the company's interior collection: furniture, lamps, frames, dining essentials, linens, and furnishings. Naturally, everything is for sale. While boutique hotels may not be for everyone, they certainly succeed at one innovation: the designer night's sleep.

For a look at some of the existing and planned designer hotels, click here for a slide show.